The government is changing how salary sacrifice for pension contributions works, HM Treasury said on 26 November 2025. From April 2029, the amount exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice1.
Salary sacrifice is when an employee agrees to reduce their gross salary or sacrifice a bonus and, in return, the employer pays the same amount into their pension1. Under the change, contributions above £2,000 will no longer be exempt from National Insurance, though savers will still be able to pay more than that into a pension2.
"As announced at Autumn Budget 2025, the government is changing how salary sacrifice for pension contributions works."
The £2,000 figure is described by HM Treasury as an annual cap on the amount exempt from NICs for employee contributions made through salary sacrifice1. Which? reported in September 2026 that the cap applies to the amount that can be paid into a pension via salary sacrifice, and that contributions above it will not be exempt from National Insurance2. The same article noted that some employers offer bonus sacrifice, where a bonus is paid directly into a pension rather than through payroll, and gave an example: someone earning £30,000 who receives a £1,000 bonus as pay would take home £720 after tax and National Insurance, while diverting it to a pension via bonus sacrifice would put the full £1,000 into the pot2.
The cap sits alongside the existing auto-enrolment minimums. By law, an employer must enrol a worker into a pension scheme if they are aged between 22 and state pension age and earn at least £10,000 a year, and employers must contribute at least 3% of earnings between £6,240 and £50,270 on the same age and earnings conditions2. Under auto-enrolment rules, employees must contribute at least 5% of qualifying earnings and employers at least 3%3.
| Measure | Detail |
|---|---|
| NICs-exempt salary sacrifice pension contributions | Capped at £2,000 a year from April 20291 |
| Contributions above the cap | Still permitted, but not exempt from National Insurance2 |
| Auto-enrolment minimum employer contribution | 3% of earnings between £6,240 and £50,2702 |
| Auto-enrolment minimum employee contribution | 5% of qualifying earnings3 |
Why it matters for households
The change affects employees who use salary sacrifice to pay pension contributions, and it takes effect from April 20291. Salary sacrifice reduces gross pay in exchange for an employer pension contribution, which is why the sacrificed amount currently escapes National Insurance1. Capping the exempt amount at £2,000 a year means any salary-sacrificed pension contribution above that level will attract National Insurance from April 20291.
The practical effect depends on how much a person sacrifices. Someone sacrificing £2,000 a year or less sees no change under the cap as described. Someone sacrificing more would, from April 2029, face National Insurance on the excess, while still being able to pay the money into a pension2. The sources do not set out the rate at which the excess would be charged, or how the cap interacts with employer National Insurance, and this has not been reported.
The cap applies to salary sacrifice specifically. Pension contributions made by other routes, such as relief at source, are not described in these terms in the sources. The pension tax-free lump sum remains untouched, according to interactive investor's commentary on the Budget4.
What happens next
The measure takes effect from April 20291. HM Treasury published the change on 26 November 20251. No further implementation dates, draft legislation or consultation on the cap appear in the sources, and none has been reported.
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